Thursday, 26 April 2012

BlackBerry-maker RIM’s turnaround countdown

 BlackBerry-maker RIM’s turnaround countdown
April 26, 2012 Josh Rubin
How much time does BlackBerry maker Research in Motion have to turn itself around? It depends who you ask. Billionaire investor Prem Watsa, whose Fairfax Financial took a five per cent stake in the Waterloo-based firm earlier this year, figures RIM has three to five years, thanks largely to its relatively-solid balance sheet.

Research analysts who cover RIM, however, see a much shorter timeframe for the company, whose market share and stock price have plunged.
Watsa launched an impassioned defence of RIM Thursday, saying there’s still plenty of life in a company being written off by many observers.
“All of you are using BlackBerrys and you don’t think the company’s going to survive,” said Watsa, speaking with reporters after addressing shareholders at Fairfax’s annual general meeting. Watsa pointed to each journalist at the table, asking them one by one what kind of smart phone they had.
Meanwhile Thursday, RIM shares rose more than 70 cents in morning trading, and have climbed 9 per cent this week. That followed a blog report that the company could be unveiling a new phone using the BB10 operating system by August. RIM shares jumped 48 cents to close at $13.90 in trading on the TSX, after earlier rising as high as $14.19.
Over the last 18 months, RIM shares have plunged 90 per cent, as the company’s share of the smartphone market has dropped, particularly in North America.
Still, Watsa brushed that aside, and brushed off a question comparing RIM’s decline to the fall of Nortel Networks, another formerly high-flying Canadian technology firm, which ended up declaring bankruptcy and having its portfolio of patents auctioned off.
“I take confidence in the $2.1 billion in cash, and no debt. . . . These are completely different circumstances than Nortel,” said Watsa.
Watsa eventually sees RIM’s business — and its share price — turning around.
“Will it happen in three months, six months or nine months? No,” said Watsa, who called it a three- to five-year turnaround scenario.
Research analysts, however, question whether RIM can wait that long.
“Three to five years is a lifetime in the smartphone/handset market. . . . If RIM doesn’t turn things around in the next 12 months, then it is hard to fathom they still have $2.1 billion in cash with no debt, let alone then have the scale or market share to finally turn things around in 3 to 5 years,” said Mike Walkley, managing director and communications technology analyst at Canaccord Genuity.
Walkley said when Apple introduced the iPhone five years ago, RIM and other would-be competitors weren’t concerned. During the December quarter, Walkley pointed out, Apple had 85 per cent of the profits in the entire handset industry.
Trying to read the tea leaves several years out can be tough, agreed analyst Kevin Dede of Auriga USA.
“The smartphone market has been the fastest-changing consumer electronics market ever. It’s just amazing when you think about it,” said Dede. RIM is far from the only player whose market share — and share price — has risen and plunged dramatically in a relatively short time.
“Look at HTC. Look at Nokia,” said Dede.
One comparison which isn’t fair though, said Dede, is Palm. The company which popularized personal digital assistants (PDAs) was taken over by Hewlett Packard after its market share plunged. HP eventually closed Palm entirely, relegating a former tech star to history’s dustbin.
“Palm had a huge amount of debt. RIM doesn’t. RIM has as much time to turn around as their balance sheet will allow,” said Dede.
Watsa urged other investors and analysts to be patient with new CEO Thorsten Heins.
“You’ve got a terrific manager in Thorsten Heins,” he added. “Don’t second-guess every second move he makes. Let him do it.”
Watsa also said he wouldn’t have invested in RIM if company founder Mike Lazaridis weren’t still on the board.
Still, Watsa said he didn’t have any plans to boost Fairfax’s stake in RIM.
“The company is worth $7 billion. Five per cent of that is a lot of money,” said Watsa.
Sale rumours have swirled since RIM’s most recent quarterly earnings report, in which the company said it had lost $125 million. Heins said the firm would be undergoing a strategic review, which could include steps such as licensing its software, or potentially, a sale.

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